International ratings agency Fitch has reaffirmed Sri Lanka's largest private bank HNB at its AA-(lka) National Long-Term Rating, citing the institution's strong domestic market position despite exposure to the country's weak sovereign credit profile.
Fitch Ratings has maintained Hatton National Bank PLC's National Long-Term Rating at 'AA-(lka)' with a stable outlook, along with affirming the bank's senior unsecured debt at the same level and subordinated debt at 'A(lka)'. The rating reflects HNB's position as Sri Lanka's fourth-largest commercial bank with a robust domestic franchise, though the agency notes the institution remains vulnerable to the sovereign's credit challenges, which carry a 'CCC+' rating.
The bank's financial strength is tempered by its significant exposure to Sri Lanka's domestic economy and government securities. Fitch points to aggressive expansion as a defining characteristic of HNB's recent strategy, with the loan portfolio expanding 42 percent over the 15 months through March 2026, primarily driven by corporate lending. The agency expects this growth rate to moderate as the bank adopts a more cautious stance in response to broader economic pressures affecting the operating environment for Sri Lankan banks.
HNB has increasingly diversified its lending internationally, with overseas lending rising from 2 percent of the loan portfolio in 2024 to 7 percent by end-2025 and continuing to climb through the first quarter of 2026. While this provides geographic diversification, Fitch warns that exposure to high-risk foreign markets and currency fluctuations pose emerging asset quality risks. The bank's impaired loan ratio improved to 5.7 percent in the first quarter of 2026 from 5.9 percent at year-end 2025, though Fitch anticipates credit impairments will rise in the near to medium term.
Profitability is expected to face headwinds from higher impairment charges and margin compression stemming from recent policy rate increases. The bank maintains above-average capitalization with a common equity Tier 1 ratio of 16.8 percent as of March 2026, the highest among peers, positioning HNB for potential selective expansion opportunities. However, the loan-to-deposit ratio has risen to 82.1 percent, approaching pre-crisis levels and potentially constraining future liquidity flexibility.
